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Monday, November 29, 2010

Obama Wants Federal Pay Freeze

President Obama is calling for a two year federal employee pay freeze, which is estimated to save the country 60 billion dollars over the next decade. 60 billion dollars is not going to save the US from our future debt problems, but what is significant here is the precedent that is being set.

Austerity is a word that has gained traction in many of the European nations who have made the fiscal decisions necessary to stabilize their countries finances. In contrast, the US has been stuck in political bickering and demagoguery, each party eager to appease it's constituents. No matter what path is taken, hard decisions need to be made.

By calling for this pay freeze, Obama is signaling his willingness to cut spending. Unlike other countries, where the government has the power to enact unpopular legislation, the US system is designed for gridlock. Passing any new measure requires the house, the senate, and the president to agree, and with such a bitterly divided two party system, this is no easy task.

There are few places I can think of that would be better suited for this baby-step of fiscal policy. Federal workers in the US enjoy good pay, great benefits, and almost no job accountability. Most government workers cannot be fired for anything short of treason, and many can retire with quarter benefits in 20 years, half benefits in 25 years, and full benefits in 30 years. Beginning your career at the age of 24, by 54 you can retire with full lifetime benefits. This is unheard of in the private sector. Many employees take their pension and then get jobs as consultants, collecting both their government benefits and a full-time paycheck. A wage freeze is the first step in bringing their compensation into line with industry averages.

The real victory here is not financial but psychological. Obama is telling the US, "I need to make some tough choices, but I'm doing them for the good of this country." Hopefully this time my fellow Americans will listen.